COVID-19 has wreaked havoc on the world economy, which is set to contract the most since WWII this year. China has not been immune – it is on track for its slowest growth since the Mao era – but set against the gloomy global backdrop, its economic performance has been exceptional. It will be one of very few economies to grow at all in 2020. As a result, its share of global GDP has jumped, probably by the most on record. But we would caution against extrapolating this strength too far into the future. The structural weaknesses in China’s economy – demographics, rising debt burdens and diminishing returns on investment – are currently being papered over with stimulus. China’s rebound during the Global Financial Crisis obscured an underlying decline in trend growth that only become apparent a few years later. We think the same will be true this time.
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